3 Things You Must Know About Power of Sales

The first thing that come to mind when most people think of good real estate deals in this city are power of sales. I have been fortunate enough in my business to collaborate with another established agent in selling these distressed properties and have seen all types. While some of these have great potential, due diligence is definitely required to avoid any headaches or pitfalls. Here are 3 things you must know about all power of sales:

1) Sold As is/where is

This is a common term in the real estate industry that essentially lets the seller off the hook. The buyer accepts the fact that no matter how the condition of the home they are buying, it is sold 'as is' with no further recourse should any suprises arise. Whether there are plumbing, foundation, or any other type of issues, it does not matter. If you rip out a wall in the basement and discover there is a full oil tank behind it that wasn't disclosed in the purchase and sale agreement, that is now your problem. Lawyers are very detailed when wording these clauses as they want absolutely no legal recourse should the home collapse a day after closing (far fetched, but you get the point). Most of the financial institutions that take over these homes have not even seen the home or the condition of it therefore to make any representations about it would be unlawful - one more reason they sell them 'as is, where is'.

It is usually the former grow ops that tend to get all the headlines when it comes to power of sales but the reality is there are many that have never been used for illegal purposes but simply bought by people who could no longer afford the home.

2) Financing

Nobody buys a home on a whim so when you are ready to start your search for a power of sale, the absolute first thing you need to do is get a pre approval from a trusted mortgage broker. A pre approval is based on you - not the property at this point (that will come later when you actually purchase one), so make sure your credit is squeaky clean and your score is high - this goes a long way. Lenders will scrutinize any power of sale you buy - and with reason.

Now let's say you are pre approved for a $600,000 mortgage so you figure, that's great, i'll start shopping for homes in the $600,000 range, right? - WRONG. Do not, under any circumstance, extend yourself to the maximum of your pre approval. Sh*t happpens, and should the bank review and appraise the property you just bought for 600K and decide, "you know what, we are not too keen about it, and the 20% down payment you agreed on in the pre approval, well ya, now we want 30% down payment as extra security." Now what? You better come up with the extra down payment or risk losing your deposit. "Oh, and the 3% interest rate we promised, well that's for a more 'marketable' property, our best rate for this property is 4%".

Make sure you have more than enough liquid cash in the bank and don't over extend yourself.

3) Negotiations

This is not your typical transaction. You are dealing with banks and lawyers selling the home - not the home owner. Emotions do not factor in these negotiations. It comes down to money and terms. Believe me, not necessarily in that order. Banks are in the business of lending money, not selling houses. They would much rather take a lower price and rid themselves of the property in a couple of weeks rather than take more money and close on the property in four months. Give a substantial deposit - they like that. Conditions? Forget about them - they won't fly. Lastly, work with a reputable agent and brokerage, familiar with these properties - they will know how to save you the most amount of money.

If you or anyone you know would like power of sales sent to your inbox every week send me an email at: [email protected]
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